Oligopoly Limit Pricing

We expand Milgrom and Roberts' (1982) limit pricing model to allow for multiple incumbents. Each incumbent is informed as to the level of an industry cost parameter and selects a pre-entry price while a single entrant observes each incumbent's pre-entry price. We find that incumbents are unable to coordinate deception, which results in a separating equilibrium in which pre-entry prices are not distorted. Further, introducing the refinement of unprejudiced beliefs, we show that the no-distortion equilibrium is the only refined separating equilibrium. Plausible pooling equilibria fail to exist or involve downward distortions in pre-entry prices.